Undue Hardship and the Medicaid Penalty Period

View of homepage of Medicaid website on smartphone.If you are planning to apply for Medicaid, you might not realize that you should think twice before transferring any of your assets.

If you transfer assets within five years of applying for Medicaid, you could in fact face a penalty period. During this time, you would not be eligible for Medicaid benefits. An exception does exist, however, if enforcing the penalty period could cause you, the applicant, an "undue hardship."

This exception is difficult to prove and rarely granted, but it may be possible in certain circumstances.

When You Apply for Medicaid

A state Medicaid agency must determine whether an applicant has transferred any assets for less than fair market value within the past five years. If any such transfers occurred, the state imposes a penalty period, as mentioned above. This is a timeframe during which the applicant would not be able to qualify for Medicaid benefits.

Medicaid applicants can fight this penalty if they can show that it would cause them significant difficulty or expense. Federal law provides that an undue hardship exists if the penalty period would deprive the applicant of the following:

  1. medical care necessary to maintain the applicant's health or life or
  2. food, clothing, shelter, or necessities of life.

The burden is on the applicant to prove that hardship exists. A nursing home can also pursue a hardship waiver on behalf of a resident.

Proving an undue hardship can prove difficult. The Medicaid applicant needs to show that they can't afford nursing home care during the penalty period. They also need to demonstrate that without nursing home care, their health will decline.

In addition, states are free to define "hardship" as they see fit. Courts also vary on how they enforce the hardship exception.

For example, one 2014 appeals court in New York ruled that an undue hardship exception applied. It came to this conclusion even though the nursing home did not attempt to evict the applicant because she was insolvent. (In addition, no other nursing home would accept her.)

On the other hand, another case from 2013 out of New Jersey ruled differently. There, the appeals court considered a Medicaid applicant whose son had transferred the applicant's assets to himself. The court ruled that the applicant in fact did not qualify for the undue hardship exception. It reasoned that the applicant had not proven that his health or life were in danger.

Consult With Your Elder Law Attorney

If are thinking about applying for Medicaid, work with your elder law attorney. They will have the expertise to help you navigate the application process. They may even be able to identify other public assistance programs for which you may qualify. At the same time, they can support you in arguing that you will face undue hardship.